Climbing mortgage rates result in mortgage application slowdown, 12% decline in refinancing: survey
Adjustable-Rate Mortgage activity increased to 6.8% of all activity
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Mortgage applications and refinancing continue to decline as rates climb, according to data from the Mortgage Banker’s Association (MBA).
"The 30-year fixed mortgage rate increased for the fourth consecutive week to 4.90 percent and is now more than 1.5 percentage points higher than a year ago," Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, wrote in a statement. "As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019."
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Housing demand remains high on the back of a hot job market and wage growth: The U.S. economy recorded solid job growth as payrolls jumped by 431,000 in March and the unemployment rate dropped to 3.6% - its lowest level since Feb. 2020.
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But the lack of housing inventory, which resulted in an elevated average purchase price, has restrained the market.
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"The elevated average purchase loan size, and steeper 8 percent drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges," Kan added.
Refinancing activity also dropped to 38.8% - a loss of 1.8% from the previous week, and tumbled over 12% from the same period the previous year.
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One area that saw an increase of activity was the adjustable-rate mortgage (ARM) share, which rose to 6.8% of total activity. An ARM will provide a lower initial rate, which might explain the increase of activity: homebuyers will gamble that they can refinance at a later date or that rates might remain low at that time.
The MBA survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.